(Oct 29): Italy plans to move about €4.6 billion (RM21.73 billion) originally earmarked for its embattled auto industry toward a business that currently has better prospects: defence.

A recent budget document had listed the funding for a project to shore up automotive supply chains in the country, but that support has now been removed, according to a statement from industry lobby Anfia. Instead, the funds will be channelled toward the defence sector, Italian media including Il Sole 24 Ore reported.

A representative for Italy’s Finance Ministry did not immediately respond to requests for comment.

The Italian auto industry has been crippled by a slowdown at the country’s main carmaker Stellantis NV, the global group that comprises the Chrysler, Fiat and Peugeot brands.

Car and van production in Italy is expected to fall to less than 500,000 units this year, from around 750,000 in 2023, according to union estimates. Italian component makers have also been hit by the crisis in the German auto sector.

Prime Minister Giorgia Meloni’s government has clashed repeatedly with Stellantis over moves to shift production to lower-cost countries as demand for electric vehicles fizzles.

EV sales are down 2.6% across Europe this year through September according to the European Automobile Manufacturers’ Association, dragged down by reduced subsidies in major markets like Germany.

Europe’s defence companies, meanwhile, have shown strength as they look to benefit from countries restocking equipment donated to Ukraine and seek to reduce their dependence on the US.

And while European Nato members have pledged to step up military spending, the region’s defence sector remains highly fragmented. Leonardo SpA, Italy’s top defence group, has repeatedly said it wants to play a leading role in future consolidation of the industry. Italy controls Rome-based Leonardo with a stake of about 30%. 

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